Monetary Announcement Premium in China

72 Pages Posted: 8 Feb 2018 Last revised: 15 Apr 2019

See all articles by Rui Guo

Rui Guo

Independent

Calvin Dun Jia

Renmin University of China

Xi Sun

Renmin University of China

Date Written: April 14, 2019

Abstract

By studying China, this paper examines the stock market returns in an environment when the dates of information supply through public announcements are not pre-fixed. We document that excess returns on Chinese equity market accumulate for three days before its central bank PBOC releases data of monetary aggregates, which may be announced either early or late in a month. This pre announcement premium appears sizable, has a longer duration than that of the pre-FOMC premium in the U.S., and is not driven by potential data leakages or expectation changes. We then present a model to account for this premium by featuring investors' information demand given central bank's announcements are not pre-scheduled. As investors with limited attention find it optimal to learn about monetary data prior to announcement, increasingly devoted attention drives down market uncertainty and boosts up equity prices. We show the institutional details of China render the exact data structure for us to test the key model mechanism of uncertainty reduction, which helps rationalize the empirics found both for China and the U.S.

Keywords: Equity Premium, Monetary Policy, Announcement, Macro Finance

JEL Classification: E44, E52, G12, G14

Suggested Citation

Guo, Rui and Jia, Calvin Dun and Sun, Xi, Monetary Announcement Premium in China (April 14, 2019). Available at SSRN: https://ssrn.com/abstract=3114038 or http://dx.doi.org/10.2139/ssrn.3114038

Rui Guo

Independent

No Address Available

Calvin Dun Jia (Contact Author)

Renmin University of China ( email )

59 Zhongguancun Street
Beijing, 100872
China

Xi Sun

Renmin University of China ( email )

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

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